ATLANTA–Georgia’s employment grew by 85,500 jobs in calendar year 2017 (January to December), a sharp moderation from the gain of 120,600 jobs in calendar year 2016.
“The question going forward is will this moderation continue or will the positive national and international developments arrest this moderation trend?” said Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Compared to the nation, there are more peaks and valleys in monthly job numbers, but a clear downward trend can be seen since the state’s job growth rate peaked in the first quarter of 2015. This trend also is evident in neighboring and competitive states like Tennessee, Florida and North Carolina,” Dhawan wrote in his quarterly “Forecast of Georgia and Atlanta,” released Feb. 28, 2018.
Georgia’s employment growth in the fourth quarter of 2017 was better than the national number.
In 2017, small businesses were buoyed by good consumer spending, while large corporations benefitted from strong stock market gains of almost 20 percent in the Standard & Poor’s 500 index. Going forward, recent tax cuts (reforms) also benefit consumers and businesses alike. Specifically, small business and domestically demand-driven sectors in the state will remained buoyed by better consumer spending.
“Global growth recovery is evident in Georgia’s exports, which rose in 2017,” Dhawan said. “Exports to Canada, Mexico and China, the state’s largest trading partners, improved substantially last year.”
Increased trade at the state’s largest port in Savannah led to increased job growth in Savannah. Augusta and Athens also saw substantial increases in job growth.
In metro Atlanta, the construction sector saw a sharp moderation in job growth, which Dhawan attributed to the combination of a slowdown in multifamily activity and the completion of SunTrust Park and Mercedes-Benz Stadium.
“Residential housing permits trended lower in 2017 due to a 38.4 percent drop in multifamily housing permits, a trend we expect to continue until 2019,” Dhawan said.
Moderation in the catalyst sector of manufacturing, due to the strong dollar and global economic weakness with trading partners in the Middle East, Latin America and China, has had a trickle-down effect on other sectors, such as hospitality and retail trade, hitting Dalton and Columbus particularly hard, he said.
Dhawan predicts manufacturing will improve in 2018 as the dollar is predicted to weaken this year.
The sustained stock market bull run and corporate tax reforms will continue to support growth in the metro region and Georgia’s large corporate and financial activities sector. Dhawan believes that capital spending will improve in these sectors and aid in job creation.
“These positive factors, domestic and international in scope, will help mitigate the moderating rate of growth in job creation we saw in the last 18 months,” said Dhawan. “We predict a weakening of this moderating trend in job growth, which is the best we can hope for this late in the business cycle.”
Highlights from the Economic Forecasting Center’s Report for Georgia and Atlanta
- Georgia employment will add 76,200 jobs (17,600 premium jobs) in 2018, 64,200 jobs (15,100 premium) in 2019 and 58,900 (13,600 premium) in 2020.
- Nominal personal income will grow 4.1 percent in 2018, 5.3 percent in 2019 and 5.6 percent in 2020.
- Atlanta will add 58,100 jobs (13,100 premium jobs) in 2018, 48,900 jobs (11,700 premium) in 2019 and 43,600 jobs (10,100 premium) in 2020.
- Atlanta permitting activity in 2018 will increase 1.2 percent, increase 2.1 percent in 2019 and 4.0 percent in 2020.
ATLANTA–Look for new Federal Reserve Chair Jay Powell, who succeeded Janet Yellen at the end of January, to set forth multiple Federal Reserve rate hikes this year, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.
“Three is a safe bet based on my projections for growth,” Dhawan wrote in his “Forecast of the Nation,” released Feb. 28, 2018. “But this first one, expected in March, may get delayed if financial markets are in turmoil.”
Dhawan points out that the markets had a near correction in February and the 10-year bond rate spiked 50 basis points since early January. Financial markets are fearful about inflation. The forecaster notes they seem to be heading toward a correction because of these inflation fears.
“The seed of this inflation fear was planted with the release of the Jan. 26 gross domestic product (GDP) report showing 2.6 percent growth for the fourth quarter, a drop from 3.2 percent growth in the third quarter,” said Dhawan. “The reason for this slowdown was that hurricane rebuilding efforts lifted third-quarter GDP growth somewhat and faded by the fourth quarter.”
The personal consumption expenditure (PCE) deflator, which measures prices paid by consumers for goods and services, also reached a four-year high and came in near the Fed’s 2.0 percent target inflation rate, causing a late January sell-off.
“What really ignited the fire,” Dhawan said, “was the employment report released in early February, which showed not only a solid gain of 200,000 new jobs, but, more importantly, a jump of 2.9 percent in wage growth.”
The markets were already skittish, he said. This bump up in wage inflation just fueled the fire and resulted in a 1,200-point drop in the Dow index.
“The recent volatility in markets is of concern, mainly due to exaggerated fears of inflation materializing rather than reality,” Dhawan said.
Despite the fear of a stock market correction, most consumers should have something to look forward to in 2018.
“Personal income tax cuts will put more money in most people’s pockets,” Dhawan wrote. “Additionally, tightening in the labor market produces wage inflation.”
The additional consumer spend because of these gains will stimulate business demand and allow for GDP growth near 3.0 percent in the first half of 2018. Dhawan points to business investment to keep the ball rolling through the rest of the year.
“The tech investment rate is the best predictor of future job and income growth,” he said. “It should go up to 8.5 percent in 2018, and, along with an increase in the equipment investment rate, we should see 3.1 percent GDP growth in 2018.”
This growth estimate led Dhawan to forecast the last two rate hikes of 2018. He predicts a moderation in GDP growth for 2019 and 2020. Dhawan also predicts the 10-year bond rate, which averaged 2.3 percent in 2017, will rise to 3.2 percent in 2018.
“Housing starts will average 1.25 million over the next three years, unable to push higher due to rising mortgage rates and skittish, millennial first-time buyers,” Dhawan said.
Without housing starts moving to the 1.5 million mark because of the above factors, the economy will be unable to sustain a 3.0 percent-plus growth rate.
“Another way to try to push GDP higher is through vehicle sales,” Dhawan said. “But, if you have used every trick of financing to give subprime borrowers a vehicle in the last five years, you can’t milk this avenue anymore as rates rise.”
Highlights from the Economic Forecasting Center’s National Report
- Following GDP growth of 2.3 percent in 2017, the economy will expand at 3.1 percent in 2018, 2.5 percent in 2019 and 2.0 percent in 2020.
- Business investment grew 4.7 percent in 2017. Expect growth to settle at 6.5 percent in 2018, 5.4 percent in 2019 and 4.3 percent in 2019. Jobs will grow by a monthly rate of 191,200 in 2018, 177,200 in 2019 and 134,000 in 2020.
- Housing starts will average 1.253 million units in 2018, fall slightly to 1.238 in 2019 and rise again to 1.274 in 2020. Expect auto sales of 17.1 million units in 2018, 16.4 in 2019 and 16.1 in 2020.
- The 10-year bond rate will average 3.2 percent in 2018, 3.8 percent in 2019 and 4.1 percent in 2020.
Can two companies in the same industry have very different valuations? In short, the answer is a resounding, yes. Let’s take an example of two companies that both have an EBITDA of $6 million but with two very different values. In fact, Business One is valued at five times EBITDA, which prices it at $30 million whereas Business Two is valued at seven times EBITDA, meaning it has a value of $42 million.
Value Difference Checklist
- Revenue Size
- The Market
- Growth Rate
- Regional/Global Distribution
- Management & Employees
- Capital Equipment Requirements
- Intangibles (Intellectual property/patents/brand, etc.)
There are quite a few variables on the above checklist that stand out, with the top one being that of growth rate. Growth rate is a major value driver when buyers are considering value.
Business Two, for example, with its seven times EBITDA has a growth rate of 50%, whereas Business One, with its five times EBITDA has a growth rate of just 12%.
Discovering the real growth rate story means answering some pretty important questions.
- Are the company’s projections achievable and believable?
- Where is the company’s growth coming from?
- Are there long-term contracts currently in place?
- Where is the growth originating? In other words, what services or products are driving growth? Will those services or products continue to drive growth in the future?
- How is the business obtaining its customers for the projected growth?
- How reliable are the contracts/orders?
Ultimately, finding the difference in value between two businesses, that otherwise appear similar, usually resides in growth rate. This is a factor that should not be overlooked. It is essential to know a company’s growth rate as well as the key questions to ask regarding its growth. If you are going to obtain an accurate valuation as well as understanding the valuation between different companies, this part of the process cannot be overlooked.Read More
The simple fact is that family businesses are different. After all, a family business means working with family and all the good and bad that comes with it.
While an estimated 80% to 90% of all businesses are family owned, relatively few are properly planning for what happens when it comes time to sell. According to one study, a whopping 72% of family businesses lack a developed succession plan which is, of course, a recipe for confusion and potentially disaster. Additionally, there are many complicating factors, for example, studies indicate that 40% to 60% of owners of family businesses want the business to remain in the family, but only 40% of businesses are passed to a second generation and a mere 10% are passed down to a third generation.
Let’s turn our attention to a few of the key points that family business owners should consider when selling a business.
- Confidentiality should be placed at the top of your “to do” list. When it comes to selling a family business, it is vital that confidential is strictly observed.
- Remember that it may be necessary to lower your asking price if maintaining the jobs of family members is a key concern for you.
- Family members who stay on after the sale of the business must realize that they will no longer be in charge. In other words, after the sale of the business the power dynamic will be radically different, meaning that family members will now have to answer to new management, outside investors and an outside board of directors.
- Family members will want to appoint a single family member to speak for them in the negotiation process. A failure to appoint a family member could lead to confusion, poor decision making and ultimately the destruction of deals.
- When hiring a team to help you with selling your business, it is critical that your lawyer, accountant and business broker are all experienced and proven.
- Don’t hold meetings with potential buyers on-site.
- Every family member, regardless of whether they are an employee or an investor, must be in agreement regarding the sale of the company. Again, one of your primary goals is to avoid confusion.
- Family employees and family investors must be in agreement regarding the sale price or there could be problems.
Working with an experienced business broker is a savvy move, especially when it comes to selling a family business. Business brokers know what it takes to make deals happen. Being able to point to a business brokers’ past success will help reduce family member resistance to adopting the strategies necessary to successfully sell a business.Read More
A recent article posted by The National Law Review entitled “Thinking of Selling? Start Early, Build Your Team” explains the importance of putting together a good team of trusted advisors well in advance of selling your business. Your team should include an attorney, accountant, investment banker, and wealth manager. This team will help you with various aspects of selling your business such as:
- Setting a realistic valuation on the business
- Finding potential buyers
- Handling due diligence and information requests from buyers
- Structuring a transaction for tax & liability protection
- Dealing with the sale proceeds and making sure your goals are met
It is a good idea to put this team together as soon as possible if you’re thinking of selling, so everyone has time to prepare. There are so many aspects to a business sale and it is essential to have an experienced team of professionals to guide you in the process.
A recent article from The San Angelo Standard-Times entitled “Business tips: Don’t neglect due diligence when buying a business” emphasizes the important of due diligence when buying a business, which consists of looking into and understanding the important aspects and fine details of the business before closing.
The first aspect to consider is if the business is right for you and your personal circumstances. Taking over a new business will require some help from the previous owner who has knowledge of the business and the industry. You will also want to take into account how many hours are needed, if the job will involve a lot of physical work, and if your family supports you in the purchase of this type of business.
Reviewing and analyzing the seller’s numbers and documents is also a huge part of due diligence. Consider using the help of a CPA, consultant or business broker to go over the financials of the business. You will also want to look into things such as if there are any claims on the business or if the business owes back taxes. Doing your due diligence now will ensure that there are no surprises later on in the process.
A recent article posted by the Smart Business Network entitled “Planning an exit when a succession plan isn’t an option” explains that selling your business should be part of your exit strategy when creating a succession plan is not an option. To prepare a business for sale, the business owner should recognize the strengths of the business which would appeal to potential buyers and should also have a good understanding of the business’ financials.
Business owners may also want to work with a bank that is experienced in exit planning. The bank can assist with providing insight into how buyers will view their business and what obstacles may occur while a buyer is trying to finance the acquisition. Banks will also be able to work with the buyer in assisting them with financing.
It’s important for a business owner to work with experienced professionals who have worked with sales, acquisitions and exit strategies to help them prepare for a business sale.
A recent article posted by Business.com entitled “Why It’s Prime Time to Buy a Business from a Retiring Baby Boomer” gives several good reasons why it is a good idea to consider purchasing an existing business, as a flood of baby boomers will be looking to sell their businesses and retire over the next decade.
There are many benefits to purchasing an existing business:
- Minimal upfront costs and you not only purchase the business but also the brand, customer-base, management policies and more.
- Low risk because the business is already established and has a proven track record.
- Steady cash flow along with employees and equipment.
With the generation of baby boomers looking to sell, there will be ample opportunities available for buyers. It’s important to stay in the loop and keep an eye out on available businesses by staying connected to your professional network, brushing up on local & industry publications, looking at online marketplaces, and working with a business broker.
A recent article written by Live Oak Bank entitled “6 Business Acquisition Tips from SBA Loan Experts” outlines six factors that lenders review for loans financing mergers and acquisitions.
- Stable or Positive Trend – Not only a positive trend but stability in these trends are what lenders look at to make sure that any recent growth or improvement is sustainable. A decrease in revenue is a red flag and a negative trend should be stabilized or reversed.
- Business Plan – Buyers need to have a business and transition plan for the business they are acquiring so lenders can see they have a good understanding of the business and plans for improvement.
- Key Employees – Lenders like to see that key employees will stay on with the new owner, which helps lower the risk and make the transition easier.
- Seller Transition Period – Make sure you have a transition plan in place where the seller is able to help train and assist the new owner.
- Seller Financing – The seller financing a portion of the deal shows the lender that they are confident in the new owner and lowers the risk factors.
- Working Capital – M&A lenders will review the financials of the business to see what working capital is needed. The buyer should demonstrate a clear understanding of how much and what type of working capital is needed for the business transition.